Mowlem moves to clear revenue recognition chaos
But troubled construction group still has plenty of work to do to resolve its accounting problems
Analysts have warned that troubled construction group Mowlem still has plenty
of work to do to resolve its accounting problems, after the company announced it
was undertaking a complete overhaul of its policy for revenue recognition on
contracts.
The group said it would be writing down the carrying value of contracts on
its 2004 balance sheet by £70m following a detailed review undertaken by new
finance director Paul Mainwaring, adding that it would be adopting ‘more prudent
and consistent accounting rules for recognising income on contracts’.
Mowlem has issued four profit warnings in just over a year and undertaken
millions of pounds in writedowns as a direct result of recognising project
revenues too early.
Construction analyst at Arbuthnot Securities Andy Brown said he was yet to be
convinced that an accounting revamp signalled a turnaround at the embattled
company.
‘I am not convinced, after what we’ve been through over the past two to three
years,’ Brown said. ‘The group has obviously inherited some historical issues
and with the new CEO coming in before the FD it has been difficult to clear the
problems up, but at £70m the scale of the writedown is disappointing.’
Brown said it would only be possible to tell if the accounting changes were
successful in six months’ time. ‘The group said the order book was strong and
trading expectations were in line, but if you are a sub-contractor or want to go
into a contract with the group you will have to think hard,’ said Brown.